Qualified Dividends: Investment Taxes (2025 IRS Guide)

This guide covers “Qualified Dividends” within investment taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 550 (2025), Investment Income and Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Ordinary dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown on Form 1099-DIV, box 1a.

Qualified Dividends

Qualified dividends are the ordinary dividends that are subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. See Form 1099-DIV and the instructions for Form 1040 for how to determine this amount and where to report.

See the instructions for Form 1040 to calculate the income tax on net capital gain and qualified dividends.

The maximum rate on qualified dividends applies only if all of the following requirements are met.

• The dividends were paid by a U.S. corporation or a qualified foreign corporation. (See Qualified foreign corporation, later.)

• The dividends are not of the type listed later under Dividends that are not qualified dividends.

• You meet the holding period (discussed next).

Holding period.

You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. See the examples below.

Exception for preferred stock.

In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. If the preferred dividends are due to periods totaling less than 367 days, the holding period in the preceding paragraph applies.

Example 1.

You bought 5,000 shares of XYZ Corp. common stock on July 7, 2025. XYZ Corp. paid a cash dividend of 10 cents per share. The ex-dividend date was July 14, 2025. Your 2025 Form 1099-DIV from XYZ Corp. shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). However, you sold the 5,000 shares on August 8, 2025. You held your shares of XYZ Corp. for only 34 days of the 121-day period (from July 7, 2025, through August 11, 2025). The 121-day period began on May 13, 2025 (60 days before the ex-dividend date), and ended on September 11, 2025. You have no qualified dividends from XYZ Corp. for 2025 because you held the XYZ stock for less than 61 days.

Example 2.

Assume the same facts as in Example 1 except that you bought the stock on July 11, 2025 (the day before the ex-dividend date), and you sold the stock on September 12, 2025. You held the stock for 63 days (from July 11, 2025, through September 12, 2025). The $500 of qualified dividends shown in box 1b of your 2025 Form 1099-DIV are all qualified dividends for 2025 because you held the stock for 61 days of the 121-day period (from July 11, 2025, through September 12, 2025).

Example 3.

You bought 10,000 shares of ABC Mutual Fund common stock on July 7, 2025. ABC Mutual Fund paid a cash dividend of 10 cents per share. The ex-dividend date was July 14, 2025. The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. Your 2025 Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. However, you sold the 10,000 shares on August 8, 2025. You have no qualified dividends from ABC Mutual Fund for 2025 because you held the ABC Mutual Fund stock for less than 61 days.

Holding period reduced where risk of loss is diminished.

When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions.

1. You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities.

2. You granted an option to buy substantially identical stock or securities.

3. Your risk of loss is diminished by holding one or more other positions in substantially similar or related property.

For information about how to apply condition (3), see Regulations section 1.246-5.

Qualified foreign corporation.

A foreign corporation is a qualified foreign corporation if it meets any of the following conditions.

1. The corporation is incorporated in a U.S. territory.

2. The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Department of the Treasury determines is satisfactory for this purpose and that includes an exchange of information program. For a list of treaties that meet these requirements, see Table 1-3, and IRS.gov/irb/2024-02_IRB#NOT-2024–02 .

3. The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. See Readily tradable stock, later.

Exception.

A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year.

Controlled foreign corporation (CFC).

Dividends paid out of a CFC's earnings and profits that were not previously taxed are qualified dividends if the CFC is otherwise a qualified foreign corporation and the other requirements in this discussion are met. Certain dividends paid by a CFC that would be treated as a passive foreign investment company but for section 1297(d) of the Internal Revenue Code may be treated as qualified dividends. For more information, see IRS.gov/irb/2004-44_IRB#NOT-2004-70.

Readily tradable stock.

Any stock or American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. Go to National Securities Exchange | Investor.gov, for a list of the exchanges that meet these requirements.

National Securities Exchange | Investor.gov

Table 1-3. Income Tax Treaties

Note:

For details and effective dates, see Notice 2024-11 in Internal Revenue Bulletin 2024-02, available at IRS.gov/irb/2024-02_IRB#NOT-2024-11.

Tip:

For the latest information about developments related to Pub. 550, such as tax treaties between the United States and particular countries, go to www.IRS.gov/Pub901.

Dividends that are not qualified dividends.

The following dividends are not qualified dividends. They are not qualified dividends even if they are shown on Form 1099-DIV, box 1b.

• Capital gain distributions.

• Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U.S. building and loan associations, U.S. savings and loan associations, federal savings and loan associations, and similar financial institutions. Report these amounts as interest income.

• Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year.

• Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation.

• Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property.

• Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends.

• Payments shown on Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 550 (2025), Investment Income and Expenses: Investment Income — Dividends and Other Distributions — Ordinary Dividends — Qualified Dividends — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.